Disclaimer: Any opinions expressed, potshots taken, or scientific views articulated are mine, and need not represent the opinions, potshots, or scientific views of the Federal Reserve Bank of St. Louis, or the Federal Reserve System.

1. He seems to think that John has changed his mind about "stimulus spending," and quotes from Cochrane's blog post to try to make the point. If you actually read Cochrane's blog post I don't think you will come away with the same impression. I certainly did not. Here's a section:

The "stimulus" proposition is that additional spending -- whether needed or not -- raises output and general welfare. Pay people $1 to dig ditches and fill them up again, and the whole economy gains $1.5. Yes, endorsed by Krugman because it "feels like a job" (his back must not hurt like mine does) and by DeLong: "anything that boosts the government's deficit over the next two years passes the benefit-cost test--anything at all."

The "targeted," "infrastructure," and the whole worthy apparatus to monitor the wisdom of "stimulus" spending (see John Taylor) is, in the Keynesian model, beside the point, or at best a smokescreen to befuddle the ignorant masses. It would in fact be better if the money were stolen. Thieves have high marginal propensity to consume, and they can get that "spending" out fast in an economy with few "shovel-ready" projects.

Stimulus is a remarkable proposition, because micro fallacies morph into macro wisdom. We all lambaste mayors who tax small businesses (or borrow against future taxes) to build showpiece "jobs" projects. This way lies Buffalo. Yet for the economy as a whole, stimulus says, it's true. The hurricane should have been bigger, so the government would have spent more money to rebuild. Many stimulus advocates point to WWII spending. Think about what that means: all those tanks, ships, and airplanes on the ocean floor were not a terrible economic sacrifice we paid to win a desperate war. Every ship the Germans sunk let the government buy another ship, and gain a ship and a half worth of GDP in the process!

Perhaps Cochrane misled Michael McKee and Oliver Staley because he had simply not done his homework--had not thought the issues through at an Econ 1 level. Perhaps he was playing for Team Republican and knowingly telling them lies when they called him up and asked him about Jim Tobin.

I really don't care which.

What I do know is that his intervention made Christina Romer and Larry Summers and company's technocratic job more difficult at a crucial moment.

Well boo-hoo. The key problem with the stimulus was that, in fact, it was driven by Econ 1 thinking. That's the way that Brad DeLong and Christina Romer think. At best they are doing IS-LM, but mostly this is Keynesian Cross. There are plenty of good reasons why that just does not cut it. We can do a lot better. Any student educated in a top PhD economics program today has much better tools to address the question of what the fiscal authority should do in a recession. Cochrane is not perfect, but he's thinking about the right things.

Here's my recent thinking about the general issues at stake. I'm pretty much in agreement with Jim Bullard, though we may differ on some of the monetary policy issues. Bullard argues, basically, that Friedman and Mankiw were right. Fiscal policy is mainly about the long run. We should decide how large the government should be and what it should do, and there should be essentially no discretionary countercyclical fiscal actions. That doesn't say that we can't have appropriate social insurance - what some people would call "automatic stabilizers," such as unemployment insurance - that imply greater transfers, for example, in a recession than in a boom. Or, as Cochrane points out, there may be sound reasons - tax-smoothing for example - that imply that we should run a deficit during a recession and a surplus in a boom.

Finally, DeLong finishes with this gem:

The problem is that there are a lot of influential bullshit artists out there. Cochrane is at least willing to try to engage. Lucas, Fama, Prescott, Posner, etc., etc. are not even willing to do that.

I'm wondering who those "influential bullshit artists" are. Honestly, I have no idea what he is talking about. I'm also wondering why he's picking on Lucas, Fama, Prescott, and Posner. Those people are all septuagenarians. Personally, I'm quite happy that Lucas and Prescott are still engaged in what they do well. They regularly talk about economics in public, and participate in academic conferences. They are both a pleasure to talk to - I learn something from Bob and Ed whenever I see them. What more do we want from those guys? We want them to write blogs? What for? Fama and Posner are not even macroeconomists. Who gives a crap what they think of the stimulus package?

71 comments:

And you start with bullshit of your own. I agree with Brad on this one, but for the record links are for information, they are not necessarily endorsements (as a look through the lists of links will make clear).

I often link to things I disagree with when I think they are making a good point (e.g. recent links to Mankiw and Taylor). I even occasionally link you when you aren't whining about DeLong or Krugman -- the majority of your posts (you just embarrass yourself -- it's very unattractive) -- and on those rare occasions when you have a decent point.

So by your count, 4 of 11 links seem okay because they don't necessarily agree with what you think is my point of view, and that is somehow a defense of what you claimed? That's pretty funny.

And on the counting, you have included Waldmann's piece as something I agree with. Evidence for that? I've been nothing but skeptical about the initiative to increase manufacturing jobs. So I don't count that as agreeing with me, I thought it was something that disagreed. That's 5 of 11. Just today. And there are other mischaracterizations in you list as well.

Also, I've never met Quiggin, so calling me as his buddy is a bit over the top (for those just tuning in, Quiggin destroyed one of Williamson's pieces -- Williamson tried to pull his usual act like an ass act toward Quiggin and got burned badly -- the "who cares" above is Williamson's way of trying to minimize the damage Quiggin did to him).

And how do you know I endorse Frank's piece? I extract almost all of the Saturday Economic View pieces at the Times. When I fail to do so, there's a reason for it. Since you know my views so well, I'll let you figure out what that reason is, and where it fits on your silly tally of posts I agree or disagree with.

But, hey, keep attacking the messenger when it's something you don't want to hear. You've prove yourself to be an ass again and again -- it's what you do. So keep mischaracterizing my views as well. You've done this to me many times before, and been told so, but why should that stop you from doing it again (in a post about bullshit no less...)?

The point of the links is to pass along information -- and your claim of intimate familiarity with how many times individuals appear on the list seems to indicate you find it useful enough to check regularly. Despite your protests -- to use your term "who cares" -- you can expect the links to continue just as they are. Many things that agree with my point of view along with solid, well thought out arguments on the other side.

You haven't linked to me in a very long time, probably because you're just in a pissy mood with regard to yours truly (e.g. your comment above). Not that I mind. Links from Thoma generally produce a flood of crackpots.

Interesting. The only problem I see is that the Washington University in St. Louis doesn't offer a top PhD economics program? According to the latest RePEc ranking Berkeley is #3 and Washington University #39. Something must be awfully wrong with this rating? Don't they know that De Long is working there and the real action is where Williamson is working?

1. There are many ways to rank departments of course. Here's another ranking:

http://chronicle.com/article/NRC-Rankings-Overview-/124724/

You'll find that, generally, Berkeley gets in the top 10 and we are in the 20-30 range. For us, that's a big improvement over where we were 8 years ago, and we're working hard to improve.

2. I don't think many students are going to Berkeley to study macro. Certainly I would not advise a Wash U undergraduate thinking about doing graduate work in macro to go there. Penn, NYU, Minnesota, UCLA, MIT, Princeton, Chicago, are where the action is, or if you really want to do New Keynesian macro, go to Columbia and work with Woodford. I think our macro group is pretty strong: Manuelli, Shin, Boldrin, and Azariadis are first-rate macroeconomists with strong track records. If I were a young student wanting to study macro, Rody Manuelli should look a lot better to me than Brad DeLong. Further, we now have strong ties with the St. Louis Fed, which is on its way to becoming the top research department in the Fed system. There is a critical mass of macroeconomists here and at the Fed which have made us an up and coming center for macro research. Pay attention.

Understand the following. The Berkeley PhD program in fact appears to be teaching state-of-the-art macroeconomics. Obstfeld/D. Romer seem to teach the first semester of the macro sequence. Gorodnichenko/Pouzo teach the second. Those are good people who know the field. Students who go through that sequence might find DeLong a little puzzling.

The problem is precisely that you don't seem to understand the monetary theory you purport to teach...

When I read something like your: "Suppose a cash-in-advance model with a representative consumer, period utility u(c), discount factor b, constant aggregate endowment y. c is consumption. The consumer needs cash to buy c each period. Suppose y is a fixed quantity of output received by a firm, which is sold for cash within the period, and then the cash is paid as a dividend to the consumer at the end of the period. Have the money stock grow at a constant rate m. The real interest rate is constant at 1/b - 1. The nominal interest rate is (1+m)/b - 1, and the inflation rate is m. Constant m implies a constant nominal interest rate and a constant inflation rate. If m < 0, there is deflation, and the nominal interest rate is sufficiently low to support the deflation. I can think of the instrument the central bank sets as either the money growth rate or the nominal interest rate - that part is irrelevant.... What's the problem?"

You seem to me at least to have gotten it completely wrong; setting a credible forward path for the nominal interest rate is not at all the same thing as setting a credible forward path for the money stock growth rate, as David/Maury/Yurii/Damian do indeed teach our first year graduate students out here.

Please, can you guys talk about Economics than personalities? Can't economics have something with out "top school phd" or the cult of personality? After all, in a socialist type representative agent mind set every one is wrong but the dictator whose welfare is maximized. Instead of wasting time on name calling, why don't you take your paper and pencil, work out how Brad's utility and Steve's utility is aggregated into the the utility of a "representative" agent?

One of the first things I learned in grad school is that appeals to authority are generally weak arguments. I guess that you skipped that lecture, huh?

Of course, appeals to authority can save time responding to ill-informed arguments. E.g., if I write some blog comment that says that John Cochrane doesn't understand asset pricing, then I will be wrong 99 times out of 100. (Maybe more often.)

Likewise, when some political junkie -- pick your favorite blogger -- wants to claim expertise on economic modeling, it is very likely that they have very little idea what they are talking about.

But, if we are going to play the "appeal to authority" game, shouldn't we compare Brad, Steve and John as individuals, not their institutions? If we compare them as individuals, John is 143, Brad is 383 and Steve is 676.

http://ideas.repec.org/top/top.person.all.html

Now, looking up the food chain from my deep, dark hole on the REPEC ranking, these three look like they are in about the same place. (Well, they in the same ballpark.)

And assessing the usefulness of an appeal to authority does depend on the topic. For example, I have no problem disputing Steve on the empirical effects of QE but I'd be much less likely to argue with him on macro/monetary theory.

In the present case, we are arguing about macro. Brad is an economic historian. Cochrane is an asset pricing guy who understands macro from that perspective. Steve is a macro/monetary theorist.

Further,I think that the 3 each have different motivations in their analysis. Brad DeLong accuses Cochrane of "playing for team Republican." This seems an unlikely motivation to me. Academia is not overrun with people who are emotionally invested in the GOP. I do know that Steve is not a Republican, though he does have a poster of Sarah Palin in a bikini up in his office. (What's up with that, Steve?) I think that we all know where Brad's political sympathies lie, although these sympathies might be honestly generated from his economic views.

Thus, I don't see that your dig-at-Steve/"appeal to authority" argument makes much sense, Stephan.

The best part of the Cochrane/DeLong posts is that Cochrane's entire point was that DeLong and other Old Keynesian bloggers have an odd penchant for acting like overgrown man-children. So of course in his response he decides to... continue to act like an overgrown man-child.

Lucas, Prescott and company are academics. They write papers, defend their ideas, thoughtfully criticize the ideas of others etc. etc. and they do it in the normal, not-a-massive-jackass sort of way.

DeLong and company: If you want your Old Keynesian kitschy revivalism to be taken seriously, write a goddamn paper on the subject and at least get it through peer review.

Nope, they're massively disingenuous and repeat arguments that were dealt with 75 years ago with no apparent respect for science. Even if they do it slightly more civily than DeLong it doesn't change the fact that they're tools.

This stuff is massively important, as it affects people's lives. So it's no surpises that people who want to help the current situation get pissy when idiots who repeat the conventional wisdom are handed the microphone because it appeals to defenders of the status quo.

"Egg Drop - You'll need fresh eggs. Using the materials found in the wilderness, the team goal is to build a structure that will support a free falling egg dropped from a predetermined height without the egg breaking."

Perhaps you should learn how to use google before commenting. Mark doesn't agree 100% with Williamson, but that not the purpose of blogs. Blogs should be a forum where we can disagree but learn and respect opposing ideas.

Weird, I learn stuff from Both Thoma and you. I learn the basic framework of how the debate is framed from Krugman/Mankiw/Thoma/Delong blogs (from a policy perspective) and then dig deeper following comments/critique on your blog, scott sumner, taylor, cochrane etc. As a non economist with limited time, it s the fastest way for me to catch up on whats going on. Anyway, inspite of all the name calling I find your blog and Thomas useful. Please keep it going.

But you can't resist? here you are doing battle with some graduate student (Noah Smith) and some other losers who won't submit their ideas to journals, but will be happy to diagnose problems and solutions. Please make your blog about the macro that gets done, not the religion that guys who have fled to newspapers and blogs use to make their case to the public. They are charlatans at worst, incompetents at best; in neither case deserving of column inches, in even a world where the latter is free.

In this case, I thought it was important to prove a point, which is that DeLong is not interested dialogue, he just likes to throw muck (in case you didn't know). I thought I would include Thoma, as he endorsed the post. Yes, sometimes I can't resist. There's a funny side to it, don't you think? You're being a little strong. Losers? Charlatans? All of these people are trying hard, and they think it's useful. It's not academic discourse, as you point out, but there may be something positive going on.

When people make arguments like 'if you take $1 from Peter and give it to Paul, Paul has $1 less', or Ricardian equivalence (which is such a fantasy even Ricardo didn't believe it) I can only conclude they are being deliberately disingenuous else loose my faith in humanity.

"Fama and Posner are not even macroeconomists"That's what I thought (Posner is actually a judge), but Cochrane argues that finance & macro are one.

Steve, you seem to understand that these online pissing matches are unproductive, but then you say "I'm only responding". Most folks think they are responding to the egregious behavior of those they are upset with, but since no response is final it just leads to an endless cycle. You don't need to make a point about Delong's behavior, anyone who isn't aware of that doesn't read blogs.

I thought I would do it to make a point this time. Once you get into it, of course it takes on a life of its own. You understand it's not just a "pissing match" though. This post actually has some substance in it about fiscal policy, though the main point of course is just a complaint about someone else's behavior. Of course you are correct in thinking that the only purpose of such a post would be to correct the inappropriate behavior. If the behavior will not change, why bother. That argument has some merit.

"Fiscal policy is mainly about the long run. We should decide how large the government should be and what it should do, and there should be essentially no discretionary countercyclical fiscal actions. That doesn't say that we can't have appropriate social insurance - what some people would call "automatic stabilizers," such as unemployment insurance - that imply greater transfers, for example, in a recession than in a boom."

And also, you said yourself, during recessions often real interest rates and other costs are low, so this is a good reason to ramp up government investment at that time.

Furthermore, government investment IS ridiculously too low. We forgo a ridiculous amount of high positive social NPV investment. So what's the argument? Why aren't you and Cochrane blogging for big increases in infrastructure, alternative energy, basic scientific and medical research,…? That's something Democrats would agree to.

Here's a beautiful model, the kind you love so much, to help convince you, from Charles Jones of Stanford and John Williams of the San Francisco Fed:

http://www.stanford.edu/~chadj/JonesWilliamsQJE.pdf

From the abstract:

Is there too much or too little research and development (R&D)? In this paperwe bridge the gap between the recent growth literature and the empiricalproductivity literature. We derive in a growth model the relationship between thesocial rate of return to R&D and the coefficient estimates of the empiricalliterature and show that these estimates represent a lower bound. Furthermore,our analytic framework provides a direct mapping from the rate of return to thedegree of underinvestment in research. Conservative estimates suggest thatoptimal R&D investment is at least two to four times actual investment.

1. I do not speak for John Cochrane.2. What kind of infrastructure do we need? It seems to me that our airports need work. Alternative energy I'm not so sure about. Why do we need the government to promote that? Where's the market failure? Scientific research? Maybe. But medical research? You think we don't do enough of that? I think it's well-funded. Education should be a priority - e.g. early childhood education in inner cities.3. Those are things that Democrats like me would agree to.

"Alternative energy I'm not so sure about. Why do we need the government to promote that? Where's the market failure?"

Uh, have you heard of global warming? Millions of air pollution related deaths estimated each year, trillions of oil dollars going to states that sponsor terrorism and some of the worst authoritarian regimes in the world, where without this oil money, they would be forced to reform and become productive to eat. Minor externalities, I know.

I mean, first you are very comfortable assuming that there's zero difference in the utility a person receives from his home, car, clothes, income, if they're in the 5th percentile or the 95th. Then you can't see the externalities in alternative energy? I'm really starting to question whether you live on the same planet as me. And yet you're comfortable assuming Ricardian equivalence. Typical families constantly watch the government to estimate its future spending so they can adjust their personal consumption, but they get no more utility (or disutility) from their car and house if they're the worst among their peers or the best. That's an interesting world you live in.

"But medical research? You think we don't do enough of that?"

It, by and large, can't be practically patented, so enormous externalities. It's a non-rival good (as well as non-positional), zero marginal cost idea product, so a private business will have a very hard time selling it, and fully extracting its utility. First, you can't price discriminate well. So what ever price you set a lot of people who could have gotten a lot of utility for this zero marginal cost product won't get it. And for those who do, the transactions costs are vastly higher than the government just putting it on the internet free and easy 24/7/365. A private company will want to keep it secret as it can't be patented. And all future generations benefit, but how is a private company going to make a deal to sell the idea products to those unborn people?

Plus, "You don't think we do enough of that?" Are you happy with the cancer cure rate? Do you like having to diet – a lot – to not become Jabba the Hut? You don't know people who have serious arthritis, mental illness, diabetes, multiple sclerosis,...? You wouldn't want to live vastly longer, perhaps reverse aging someday, maybe in our lifetime, or our children's?

By the way, I didn't see the fireworks above before commenting. Generally, it's important to not impede getting out important ideas, information, and other truths for "civility". But you do want to be as polite as possible without too much sacrificing clarity, and calling important truths as they actually are. Most people who I disagree with in the blogosphere are, I think, well intentioned, so there should be no personal animosity.

I do think the blogs serve a good purpose for the following reasons at least:

1) The journals aren't the be-all and end-all. They present mathematical models where everything is thoroughly checked for math errors, but it's a lot harder to check for good interpretations from the models to reality. Plus, there's not a lot of debate in journals. A few allow an author or two to write a counter point or response, or even a response to the response. But in their old school, hard form, you can't have an open ended back and forth, free flowing debate that goes a lot longer than one or two rounds. You have this to a large extent in seminars, or informal discussions, but how many people get to benefit and learn from those, 20, 2, it can't reach the wide global audience like blog debates can.

2) Do you want to only inform professional economists in your narrow specialty, or do you want to teach and convince all economists, well-educated non-economists, opinion leaders, and policy makers. If you want to do vastly more good you'll want to teach and convince them too, and they aren't going to read your highly specialized and mathematical journal articles.

No, that's part of the problem. There is too much patent protection for drugs.

"Are you happy with the cancer cure rate?"

Especially not with all the resources used up in studying it. We should keep trying, but that's a lot of money spent without much bang for the buck. You have to ask whether the resources could be better-allocated.

I'm referring to the advanced science of actually reversing/repairing aging with nanobots actually repairing you cell by cell to like new (18 year old, or better) condition, and other ideas like cloning your own stem cells. Amazing things, but today we're already cloning whole organs.

For more on this frontier see:

From Oxford scientist Aubrey de Grey, "Ending Aging: The Rejuvenation Breakthroughs That Could Reverse Human Aging in Our Lifetime"

A Pigouvian tax would be great. It would do a lot, but it wouldn't take care of the basic science related free rider problems, the market problems with non-rival zero marginal cost idea products. Quoting the great growth economist Paul Romer of Stanford:

As just one example, recall that the increasing returns to scale that is implied by nonrivalry leads to the failure of Adam Smith’s famous invisible hand result. The institutions of complete property rights and perfect competition that work so well in a world consisting solely of rival goods no longer deliver the optimal allocation of resources in a world containing ideas.

"...but it's a lot harder to check for good interpretations from the models to reality."

Wrong. That's one of criteria that we use to determine whether a paper should be published."

"Plus, there's not a lot of debate in journals."

Wrong again. There's debate there. And there is even more on the road to publication. Much of the debate occurs in seminars and conferences, and it's pretty heated, on the very questions you seem to be interested in. If you were actually attending those seminars and conferences, you wouldn't be saying that.

I said in my comment that there was debate in the seminars and conferences. I've participated in it. But only 20-30 people get to hear it. The journal article has some discussion of the previous literature and criticisms, but it's not like the blogosphere where someone can respond to the journal article, and then there can be a response to the response, and so on.

In the journal article they're usually conservative in their interpretations to reality with lots of caveats, true, but then in public some of these guys throw that out the window and start interpreting the model very literally, perhaps because that makes their libertarian philosophy sound better to others.

Who are these guys? Examples please. What is being thrown out the window exactly? What do you mean by literal interpretation?

To tell you the truth, Richard, while I have learned a few things in this comments section, I can think of individual conferences where I learned much more in a day than in two years of reading this stuff.

"Over-literal" interpretation of models: Acting as though the model is literally reality; reality will function exactly like the model, or a lot closer than is warranted. Prime example, Ricardian Equivilence, another example market efficiency.

I don't have time to pull up a lot of cites, but here's Robert Shiller of Yale:

"The financial crisis delivered a fatal blow to that overconfidence in scientific economics. It is not just that the profession didn’t forecast the crisis. Their models, taken literally, sometimes suggested that a crisis of this magnitude couldn’t happen."

Please stop using quotes from textbooks, papers, etc. First, why aren't quotes from Steve's textbook used? I am sure you could find a quote from his book that argues the models and methods of "modern" macro are quite useful for understanding the recent financial crisis. Why doesn't this quote count? Is this because he doesn't have Yale, Harvard, or MIT behind his name and such pedigree means a lot to you? Or because it doesn't agree with your prior opinion, and therefore can be ignored as a reasonable point of view?

Second, using quotes only shows you are unwilling to think through these issues and make your own judgements/arguments. It appears you already have your mind made up, and then look for quotes to confirm your prior. That's fine, but it is not a great way to make convincing arguments, especially to an academic economist who is not impressed by pedigree. I am not saying Shiller is not an expert, he is; however, that doesn't mean because he says something it is universally true, or is somehow going to convince anyone that "scientific economics" is not useful.

I have also heard the claim that certain models are incompatible with the existence of the crash, but I've never heard anyone actually give an example of such a model and explain how it doesn't permit them.

It all makes sense to me now. Your tone gives you away. I now understand why reading your blog gave me so many problems for it reads only as rationalization. How you say it gives it away; it just takes time to see what is going on.

Why the over reaction to any question or criticism in a comment? The denial? The refusal to support defrocking of opportunists like Greenspan?

As Festinger and his colleagues predicted, the inevitable disconfirmation would be followed by an enthusiastic effort at proselytizing to seek social support and lessen the pain of disconfirmation.

No surprises in your paper. It never mentions private debt (the bubble and Great Moderation are seen only from the "asset" side) or relative decline in research, education, or investment or the massive shift in income to the 1%

By the end it became clear: you are a fervent believer after a failure or disconfirmation.

Lucas said it couldn't happen and you believed. But it did, on your watch, and you never saw it coming.

No wonder you and your fellows hate comments. Your blog is like a Free Republic forum board.

You said it yourself, quoted below.

No wonder any light of reality is so hated here. Those of us you are out in the laboratory (the "Real World") see that is is entirely behavioral. We see a profession totally captured by special interests. We are right and your are wrong, but you won't admit such because that would mean giving up what you have captured, your self identity.

Self preservation has brought out worse in others.

You wrote:

For many economists, I think Akerlof and Shiller’s work crosses the boundary into weird economics, and behavioural economics may be seen as leading us down a slippery slope. At the bottom of that slippery slope, we conclude that everyone is stupid — individual consumers, firms, and policymakers — and we stupid economists should just close up shop and go home.

We will soon know who is right or wrong: 2013, when we cannot roll our debt and we loose a trillion in federal spending.